Government investigators have questioned three A. H. Robins Co. directors about possible self-dealing in connection with improper payments the company made after filing for voluntary bankruptcy.
Assistant U.S. Attorneys Robert W. Jaspen and S. David Schiller raised the self-dealing issue last month in taking sworn statements from former Robins president William L. Zimmer, 73, chairman of the company's executive compensation committee, and the other directors on the committee: George E. Thomas, 71, a retired senior vice president, and Stuart Shumate, 70, retired president of the Richmond, Fredericksburg and Potomac Railroad Co.
The company acknowledged in March that it had paid $1.8 million in bonuses to 18 present and retired officers in its Key Executive Compensation Plan (KECP).
Robins officials said the payments were made after the company's outside counsel approved them. The outside lawyer, who was dismissed from the case, said, to the contrary, that he told Robins he disapproved of the payments.
Zimmer -- the only attorney on the compensation committee -- testified that the Butler letter did not lead him to worry that his own request for $250,404 under the compensation plan might, in Jaspen's words, "be construed as something which would have the appearance of self-dealing."
U.S. District Judge Robert R. Merhige Jr., who presides over the bankruptcy case, had directed Schiller to take the depositions in connection with Schiller's motion to have Robins held in contempt for violating a consent order prohibiting payments out of the bankrupt estate without court approval.
Schiller's motion also asks Merhige to compel unnamed individuals to show cause why they should not also be held in contempt and to name a trustee to run the company. A hearing on the motion is set for Thursday.
Before the bankruptcy, Robins paid $1.1 million in KECP bonuses to seven current executives who had agreed to defer receipt of the money until they retired or left the company. Some of them have testified that the terms of the plan barred pretermination -- accelerated -- payments. But Zimmer said he reached "the firm conclusion that there could be accelerated payments."
The 4th U.S. Circuit Court of Appeals warned in 1945 that once a company files for bankruptcy, its directors and officers no longer represent stockholders. Instead, the court said, they "are in a sense trustees holding the corporate property for the benefit of all creditors alike, and any attempt by them to divert this property so as to deprive a creditor of his equitable part thereof, and relieve themselves of liability, will be held to be fraudulent."
The 4th Circuit warning was cited by Penn Ayers Butler of Murphy, Weir & Butler, the San Francisco law firm that Robins retained as special Chapter 11 counsel, in a Nov. 7 letter to Robins general counsel William A. Forrest Jr.
Shumate said he saw the Butler letter, but said the board never discussed its possible application to deferred compensation. He said he made no inquiries because the matter "was in good hands," meaning, he said, Forrest's. Thomas said "I don't remember" seeing the letter or hearing it discussed.
Zimmer said he had read a letter in which Butler -- on the day of the bankruptcy -- warned Forrest that "payments may not be made to any unsecured creditors for obligations which existed prior to Aug. 21, 1985." But, Zimmer insisted, a Nov. 18 memo from Forrest, the general counsel, to G. E. R. Stiles, the senior financial officer validated the KECP payments. "I was completely satisfied," Zimmer said.
Forrest wrote in the memo that in a discussion with Stiles and himself the week before, Butler "advised that the company should continue" the KECP and the smaller Executive Salary Continuation Plan "unless and until it is otherwise ordered by the U.S. District Court in the Chapter 11 case."
Actually, Butler has said, his advice was the reverse of that attributed to him by Forrest and Stiles.
On March 21, the Robins announced that Butler's law firm had been dismissed in the company's "best interest." At the same time, the company announced the resignation of Forrest as its general counsel, describing his reason as "purely a personal one."
Zimmer said he considered Forrest's letter "sufficient for the purposes of the compensation committee," but did not share it with Shumate and Thomas. "I can't tell you why," he testified. "No. I have no reason. It satisfied me."
Zimmer testified he viewed the KECP payments as part of the routine company employe-benefit program, which has a high priority claim on the estate, remarking, "this to me was money that I and the others were entitled to."
He received his payment on Feb. 25, two days before a board of directors meeting that he attended. The minutes of the board meeting said the KECP payments were discussed and management recommended that in light of the bankruptcy proceedings, no awards be made without first advising the court.
Jaspen asked Zimmer whether the board considered telling Judge Merhige of the payment just made to him. "It didn't come up," Zimmer replied.